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Euro-Area Manufacturing Contracted for 11th Month in June

Employees work on the sheet metal press production line for cooking ranges at Bertazzoni SpA's manufacturing and assembly facility in Guastalla. Photographer: Alessia Pierdomenico/Bloomberg

July 2 (Bloomberg) -- Euro-area manufacturing output
contracted for an 11th straight month in June as Europe’s debt
crisis sapped demand across the continent.

A gauge of euro-region manufacturing held at 45.1 in May,
London-based Markit Economics said today in a final estimate.
That compares with an initial estimate of 44.8 on June 21. A
reading below 50 indicates contraction.

Europe’s economy is showing increasing signs of weakness
after stalling in the first quarter as the worsening fiscal
crisis erodes the confidence of executives and consumers. While
European leaders sought at a Brussels summit last week to
address some of the flaws in regional bailout programs sparked
gains for the single currency last week, economists say the
European Central Bank needs to buttress those gains by cutting
interest rates on July 5.

“It is difficult not to see the summit in a positive
light,” RBS economists Jan Dubsky and Richard Barwell said in a
note to clients from London. Yet “there is enough of a
conventional monetary policy problem -- weak demand -- to
warrant conventional monetary policy response.”

The European currency rose for the first time in eight days
on June 29 as euro-area leaders agreed to relax conditions on
emergency loans for Spanish banks and possible help for Italy.

Euro Summit

After 13 1/2 hours of talks ending at 4:30 a.m. in Brussels
that day, chiefs of the 17 euro countries dropped the
requirement that taxpayers get preferred creditor status on aid
to Spain’s blighted banks. They also opened the way to re-capitalizing lenders directly with bailout funds once Europe
sets up a single banking supervisor.

The European Central Bank’s governing council gathers in
Frankfurt on July 5 amid speculation officials will lower their
benchmark interest rate by at least 25 points to a record low of
0.75 percent as the economy hovers near recession.

“Producers’ input costs are now falling at the fastest
rate for nearly three years, which should help boost
profitability and feed through to lower inflation,” Markit’s
chief economist, Chris Williamson, said in today’ report.
“However, their biggest fear at the moment is slumping demand
rather than rising prices, with demand in home markets and
further afield being hit by heightened uncertainty regarding the
economic outlook as the region’s economic crisis rolls on.”